March 5th 2018

Philadelphia Business Journal

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Business leaders commend Kenney for budget proposal, but remain skeptical

March 5, 2018

Alison Burdo, Digital Producer, Philadelphia Business Journal

Mayor Jim Kenney's latest budget proposal follows the self-reliant approach to education funding the current administration brought to City Hall with his inauguration in 2016. Pitching an increase to both property and realty transfers taxes, the budget proposal received praise from many business leaders in the region, though several raise concerns over the potential impact of other aspects of the plan, like the planned slowdown in wage tax reductions.

Announced Thursday, Kenney's budget proposal aims to cover the School District of Philadelphia's anticipated deficit of $900 million by 2023. The main components used to do so, the mayor proposed, will be upping the property tax to 1.48 percent, raising the city's portion of the realty transfer tax to 3.45 percent and reducing the pace of planned wage tax reductions.

Slowing down wage tax reductions raised eyebrows among Philadelphia business leaders, who have often called for additional trimming of this rate.

Josh Sevin, an economic development strategist who recently served as the acting director of the Economy League of Greater Philadelphia, applauded Kenney for recognizing the need for the city to boost local revenues to the school system, but questioned the wage tax change.

"The mayor’s proposed slowdown in reductions to the wage tax, however, is a step backward. It further delays correcting a long-standing self-inflicted policy wound, as we know the city’s long-standing over-reliance on this levy is responsible for the loss of thousands of jobs over decades – sapping the tax base needed to shore up future investments in education and other critical city needs," Sevin told the Philadelphia Business Journal.

Many say the wage tax, along with other taxes businesses located in the city face, create an unfriendly business climate and in turn, hold back economic development in the city.

Even those in real estate, like Post Brothers CEO Michael P. Pestronk, said the property tax changes are warranted but voiced concern over the wage tax portion of the proposal.

"In general, I have always thought that as a city we should get more revenue from higher real estate taxes, and have lower wage and business income taxes, in order to make our structure look more like competitive cities," Pestronk said.

He suggested, instead, the city should consider changes to its 10-year tax abatement policy, which freezes taxes on newly constructed homes for a decade. "That subsidy for people who don't need it is leading to an imbalance and starving the schools, and is totally unnecessary as an incentive to create new housing in high-income areas," he said.

Assessing how well the 10-year tax abatement policy is still serving the city is already a priority of the City Controller's Office, which has a new division currently evaluating it.

Councilman at-Large Allan Domb, a first-time politician who has decades of real estate experience, wondered how the mayor could propose any tax hike given the hundreds of millions of dollars in delinquent taxes that have yet to be collected.

"I firmly believe, we cannot in good conscience ask Philadelphians to shoulder more financial burden moving forward through an increase in any taxes until we responsibly deal with our tax delinquency issues. As I have said before, the City’s Revenue Department has made positive strides in this area; but we must and can do better," Domb said in a statement. "The truth is 94-95 percent of our citizens pay their real estate taxes. But our new reality is we are going to need more financial resources. We cannot reasonably ask the law-abiding, overwhelming majority to pay higher taxes while a small minority continues to be held unaccountable."

"I am hopeful that after hearing about the potential tax increases Mayor Kenney has proposed, that his colleagues in City Council will recognize the need to pass my delinquent tax collection legislation, which has the potential to bring in $40 million per year over 5 years, in total around $200 million which would be 20 percent of the [nearly] $1 billion Mayor Kenney seeks for schools.”